SEC Chairman Says AI Could Cause Next Big Financial Crisis

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Tech hype comes in waves, and while the focus is always changing (first crypto, then metaverse, and now AI), some things like tech reviews stay the same. SEC Chairman Gary Gensler has been public enemy no. 1 for a few years now, but now he offers his somewhat caustic assessment of Silicon Valley’s latest crush: artificial intelligence.

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Speaking at the National Press Club conference on Monday, Gensler told the crowd that AI could increase financial fragility. He made some rather stilted comments that we’ve heard many times before, that AI is the most transformative technology since printing etc. But he also said his agency is working to suggest new regulations that could thwart AI’s potential to mislead investors.

AI could play a central role in after-action reports of a future financial crisis, Gensler said.

The biggest problem, he said, was that all downstream players, i.e. all retail investors, venture capitalists, advisers, etc., could all get the same financial insights and guidance from very few base layer generative AI models. This, he said, would create a monoculture of the economy, which would put the whole economy at risk if, say, everyone bets big on the housing market, which then collapses because everyone bases its decisions on the same mortgage data.

Regulations could be based on individual models as well as AI as a whole, he said, but that’s just the investor side of the issue. The next is how bad actors can abuse generative AI to fool the masses. The SEC chief mentioned in his speech how an AI-generated piece of text from a Twitter bot account promoted the rumor that he had resigned from his position. Gensler also raised concerns about how AI is just the next big tool to get naïve people involved in the next big financial fraud scheme, because now campaigns can be personalized based on the individual based on custom AI algorithms.

With AI, fraudsters have a new tool to exploit that we all used to receive spam, but it was always the same spam, he said. Now, communications can be individualized.

Gensler should know about financial fraudsters. His agency has taken on some of the biggest persistent crypto companies like Binance and Coinbase. The SEC has also filed civil complaints against alleged perpetrators of crypto-based fraud, such as Celsius co-founder Alex Mashinsky and fuzzy-haired former FTX CEO Sam Bankman-Fried.

Rather than a big language model-based AI chatbot like ChatGPT, Gensler said the biggest use case for AI to make money is pattern recognition and its ability to make predictions about individuals, AKA the increasingly sophisticated models used to advertise and sell products directly to customers. . If targeted ads weren’t already the dark side of machine learning algorithms, Gensler also mentioned how these models could be used by insurance companies to determine who might have access to medical treatment based on who is. most likely to live.

He also raised concerns that the algorithms themselves might simply reflect racial biases resulting from poorly formed training data. He said AI models used to offer financial advice should be in the best interest of customers and retail investors and not put the interest of AI models ahead of investors.

Although crypto bros have viewed the SEC as a primary antagonist for years, the agency’s chairman has been slow to fully become the Thanos figure for fintech tans. Although Gensler was initially intrigued by the nature of blockchain infrastructure as a powerful force for good, he eventually came to see crypto as irrelevant, saying we don’t need more digital currency.

Perhaps Gensler’s view of AI will deteriorate even further over time as the hype cycle wears off and the well-known limitations of current AI become even more apparent. But as with crypto, it will likely be until the next big exploit drains investors of millions of hard-earned dollars before regulators really decide to restrict this technology.

Want to learn more about AI, chatbots, and the future of machine learning? Check out our full AI coverage or browse our guides to The Best Free AI Art Generators, The Best ChatGPT Alternatives, and Everything We Know About OpenAIs ChatGPT.

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